Divine Inc. extracts dotcom tithe from UK firm

UK e-commerce firms trading in the US face the prospect of costly payouts to Divine Inc., which claims ownership of a patent on shopping cart technology.

This week Thompson and Morgan, an Ipswich-based plant seeds specialist, settled a patent claim brought by Chicago-based Divine against it in US courts. Thompson and Morgan came to Divine's attention because of its US subsidiary, Thompson and Morgan Seedsman Inc.

Keith Lewis, financial director of Thompson and Morgan, told us the company settled on the advice of US attorneys. "It was commercially sensible, and cheaper, for us to settle. We had to take into account the time and costs if management had gone to the US to fight Divine's claims, as well as US attorney fees."

Thompson and Morgan is bound by a confidentiality agreement not to reveal settlement terms. There is no suggestion that Thompson and Morgan has stolen Divine's technology; however. Divine still pursued the UK firm for infringing its patent.

Lewis told us Thompson was simply "unlucky" - probably - to be contacted by Divine. He believes UK firms are probably outside its grasp, unless they have subsidiaries or businesses in the US.

Hands across the water

Thompson is believed to be the first UK firm dragged into Divine's licensing dragnet, but the US company has extracted revenues from smaller ecommerce outfits across the Atlantic for several months. The formulae of Divine's letters is documented by Chilling Effects, a Web site which monitors the effects of intellectual property laws on the Net.

In October 2002, ZDNet carried an informative interview with Rich Nawracaj, assistant general counsel for Divine. The "realm of potential infringers" of its shopping cart patent was huge, he said.

Divine is using its lawyers to collect revenue from its intellectual property, a legitimate tactic, albeit ethically questionable when we consider the broad scope of the original patents.

Divine acquired network sales system (shopping cart) patents (5,715,314 and 5,909,492) when it acquired struggling e-commerce outfit, Open Market, in August 2001. Divine owns 30 US patents (and more elsewhere), many of which were acquired during acquisitions made by the company during the dotcom crash. This has prompted critics to describe the US firm as opportunists.

It could be you

Divine's patent claims parallel those of San Diego-based Pangea Intellectual Properties LLC (PanIP) for an "Automatic Business and Financial Transaction Processing System" (patent number 6,289,319). PanIP's claims provoked resistance from a grass roots group called You May Be Next. We are unaware of the existence of a group opposing Divine's patent claims.

Divine, whose investors include Computer Associates, HP and Microsoft, has greater financial clout than PanIP - a factor that makes it a much more formidable adversary (as we'll see). Microsoft and HP have both invested $75 million in Divine.

Divine's Q3 turnover was $162.2m (Q1 2001 $48.1 million) with reduced loses of $37.7m, privately held PanIP doesn't disclose its revenues, but we can safely assume its turnover is much less than that of Divine.

Dai Davis, an IT lawyer at London law firm Nabarro Nathanson, and a specialist in intellectual property law, said that financial muscle is a key factor in patent disputes. "Patent litigation is notoriously expensive so it favours people with deepest pockets," he says.

According to Davis, Divine is engaged in classic patent harvesting tactics: fight smaller companies and get license fees from them in order to fight bigger organisations.

So can Divine's claim be challenged? Barnes and Noble challenged Amazon 1-click patent and for a time and succeeded in getting an injunction lifted but the case was eventually settled without a definitive judgement on the validity of Amazon's patent.

According to Davis, it is tough to prove the validity of a patent or otherwise. "Patent offices only carry out a cursory check and this doesn't prove the legal validity of patent, which can only really be established if there's previous litigation."

When it comes to the Divine patent, UK and other overseas firms are at risk of action only if thye have assets in the US. This means that Divine can issue proceedings and, crucially enforce judgements on the other side of the Atlantic.

UK-only firms are in a much stronger position to resist claims, as Davis points out. "UK courts would be very reluctant to enforce judgements. The case would need to be retried in the UK, and that's not really a practical proposition for Divine."

He advises UK firms without assets in the US to refrain from responding to letters without advice, as this could strengthen Divine's hand by proving they had received letters from the putative US litigant

Divine silence

We have furnished Divine with a number of questions by email. In particular we want to know how many firms it had approached, and its plans to further pursue its intellectual property claims.

We also wanted to talk to Divine about the scope of its patent. Does it really cover the 'add to basket function' so commonly found on e-commerce Web sites?

Divine has not replied to our email or our phone calls. But if it does, we will be sure to bring you an update. ®

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